VAT-registered businesses are required to submit VAT returns four times per year. You can, however, sign up for the VAT Annual Accounting Scheme if you are eligible (and it is worth your time). You will only have to file a VAT return once a year under this scheme. The scheme’s goal is to improve cash flow and make VAT administration as well as budgeting easier. But it is not all smooth sailing.
If you do not expect your taxable turnover to exceed £1.35 million in the following 12 months, annual accounting is usually an option. You are able to make contributions toward your VAT bill in advance under the Annual Accounting Scheme. This allows you to divide them into monthly or quarterly payments.
The amount you pay is determined by your previous year’s VAT return, or you will pay an estimate in your first year. If you choose to pay these advance payments on a monthly basis, each payment equals 10% of your estimated VAT. When you pay on a quarterly basis, each payment equals 25% of the estimated bill.
Under this scheme, you will only have to file one VAT return every year. When you submit your return, you will also need to make the final payment, known as the balancing payment, within two months of your VAT year ending.
There is a possibility of making overpayments with this scheme. Your payments are based on the previous year’s return, so even if turnover is lower, you will still be paying the same rate as last year. The overpayment will not be able to be reclaimed until the end of the year. Seasonal or other variations may create an adverse effect on cash flow. Cash flow may be harmed as a result of seasonal or other fluctuations. You must also leave the scheme if you are no longer eligible to be in it.
Thus, the VAT Annual Accounting system is anticipated to benefit only smaller enterprises who do not reclaim VAT on a regular basis.
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